Often real estate investors get caught up in whether or not a house being purchased as a rental will make money. How much will it rent for? What are the expenses associated with this property? Necessary repairs will cost how much? While Home Owners Association (HOA) dues may be factored into the expense side of the equation it can be easy to overlook the fine print of the Covenants, Conditions and Restrictions (CC&R’s) recorded by the HOA.
Failure to review and understand the CC&R’s of a home owners association could prove costly for a rental owner. The first thing to look for is whether or not the HOA allows rentals. Many do not while some, like the neighborhood in the photo only allow a certain percentage of homes to be rentals.
When the housing bubble burst a number of HOA’s here in Bend, Oregon softened their stance against rentals and turned a blind eye to owners who rented out their houses or condos. Now that the housing market is getting back on solid ground, those once lenient HOA’s are beginning to crack down. Even if there are rentals in a neighborhood with restrictions against rentals, investors would be wise not to purchase a home there. All it takes is for one owner to put up a fight and turn a cash flowing rental into an unoccupied money pit.
Whether or not a house can be rented is not the only thing real estate investors should be concerned about from HOA’s. Home owners associations can restrict most anything that residents can see, hear or smell. Such rules can limit exterior paint colors, dictate when garbage cans can be at the curb, prevent owners from parking their commercial vehicles in plain sight, and even not allow clothes to be hung outside to dry.
Rules like these can be tough enough for a resident owner to follow but a tenant will likely consider them a burden. Especially if they weren’t made aware of the rules when the lease was signed. If tenants decide they don’t want to follow the rules of the HOA, the owner will be responsible for correcting any violations and paying any fines because home owners associations do not have direct authority over tenants.
Investors should be mindful that the more restrictive the rules of a HOA are, the more time will likely be spent answering letters and phone calls from the HOA. Then there is the time spent reminding tenants to follow the rules and/or trying to collect any fines.
When it comes to HOA’s and rental properties, real estate investors should:
- Know what the HOA Covenants, Conditions and Restrictions say before making an offer to purchase.
- Consider how restrictive those rules are and how likely a tenant will be to accept and follow them.
- Make sure tenants get a copy of all of the HOA polices and rules and that they understand they are responsible for following them.